Question #149606
TRUE or FALSE statement
"Suppose the government imposes a £5 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic), then the price of cable TV will increase by exactly £5.”
"Suppose the government imposes a £5 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic), then the price of cable TV will increase by exactly £5.”
Expert's answer
The Statement is TRUE because since the demand is perfectly inelastic, an increase in price to cater for tax will not have an effect on the sales.
